The 2014 iCIO Investment Summit

The Year of the Alligator: Gravity Bites
May 19-20 2014
2
Words of Wisdom
“Six years ago, many investors were way out over their skis.
Giant financial institutions were brought to their knees. The
survivors pledged to themselves that they would forever be
more careful, less greedy, less short-term oriented…Can we
say when it will end? No. Can we say that it will end? Yes.
And when it ends and the trend reverses, here is what we can
say for sure. Few will be ready. Few will be prepared.”
Seth Klarman – Baupost
Bloomberg BRIEF – Q2 2014
MCCM Strategy Review
4
Volatile Year: Post Taper Tantrum, Equities > Safety in ‘13
Source(s): BigCharts.com.
Europe
S&P 500/R2000
GSCI
AGG/HY/EM
Long Bonds/Gold
Japan/China
Turtle Coyote Alligator
5
MCCM Tactical Asset Class Positioning – May 2013
Asset Class Stance Commentary
Domestic Equity = Valuations high; Profits Challenged; Defense best
International Equity + J apan momentum, ECB supporting Europe, EM ?
Opportunistic Equity + Long/Short strategies should extract dual Alpha
Absolute Return = ZIRP still challenging; True Arbitrage attractive
Real Estate + EM Development; Distressed, Niche Strategies
Energy & NR = Public markets battling $, Private markets best
Private Equity ++ Growth Capital in EM, Small LBO & VC best
Domestic FI = Volatility rising, Some value in Deflation hedge
Enhanced FI = Direct Lending Attractive, Spread Product at risk
Current MCCM Tactical Positions
6
Source(s): J apancrush.com.
Words of Wisdom – May 2013
7
Said Abenomics Would Spur Growth & Inflation: RIGHT
Source(s): J P Morgan, TradingEconomics.com.
8
Said Japan Inc. to Have Explosive EPS Growth: RIGHT
Source(s): Taiyo Pacific Partners, DaiwaAsset Management.
9
Said Japan Rally Still Had Headroom: HAS MORE NOW…
Source(s): Strategas, Sloane Robinson Estimates.
12% ROE, P/B 1.5
(Plus Overshoot)
12% ROE, P/B 1.5
5-13
Current Rally 5-14
10
Said Basket of Japan Inc. Stocks Would Rise: WRONG
S&P 500
Japan Airlines
Japan Foods
SMFG
Toyota/Marubeni
MUFJ
Source(s) BigCharts.com.
11
Said U.S. Housing Recovery Fading, GDP Follow? RIGHT
Source(s): CLSA, AdviserPerspectives.com.
Q4 Disappointed, Q1
Miserable (not just weather)
Latest estimate is negative…
12
Said U.S. Defensive Stocks Had Best Momentum: MIXED
Source(s): The Institutional Strategist Group (“TIS Group”), BigCharts.com.
Healthcare
Materials
Discretionary
S&P 500
Energy
Staples
13
Asked Does Valuation Matter? 23X for 11% Growth: NOPE
Hormel Foods Corporation (HRL)-NYSE
Prev Close: 42.63
Bid: 30.00 x 1000 Ask: 42.97 x 100
1y Target Est: 37.57
Beta: 0.48
52wk Range: 27.28 - 43.17
Volume: 1,064,202 Avg Vol (3m): 907,056
Market Cap: 11.31B
P/E (ttm): 22.96
EPS (ttm): 1.86 Estimated EPS 2.00
Div & Yield: 0.68 (1.60%)
Source(s): TIS Group, BigCharts.com.
14
Said Cos Levering Up, Buy Stock to Juice EPS: WORKED
Source(s): CLSA.
Financial Engineering 101:
Issue Debt, Buy Back Stock
15
Said Maximum Margin Debt at Market Tops: Was EARLY?
Source(s): TIS Group, Streettalklive.com
16
Said Complacency Nearing Highs, Minsky? RIGHT, But…
Source(s): TIS Group, BigCharts.com.
?
Had a number of Minsky Moments
in 2013; every time Bernanke
hinted at Tapering, then would
not cut QE. What will save us
now?
17
Said Risks Of Deflation Rising => More QE: RIGHT
Source(s) CLSA, Econoday.com.
?
QEinfinity
Where is the
Tapering impact?
18
Said Falling Spain/Italy Yields Give Banks a Lift: RIGHT
Source(s) CLSA, BigCharts.com.
Banco Popolar
MedioBanca/Santander
Spain/Banca PMI
Italy
S&P 500
19
Said If Japan Exporters Win, Someone Loses: WRONG
Germany, Korea &
Taiwan have been
biggest beneficiaries
of strong Yen, now
have most to lose
Source(s): MauldinEconomics, CLSA.
Germany
Panasonic
S&P 500
Korea
Taiwan
Japan
Toyota
20
Said EM Consumer Dominating Global Growth: MIXED
Source(s): TGSF Advisors, BigCharts.com.
Tata Motors
Nestle Africa/S&P 500
Hindustan Lever
China Consumer ETF
21
Said China Slowdown = Time to Short AUD/CAD: RIGHT
Source(s): TIS Group, BigCharts.com.
CAD
AUD
22
Said Chinese Export Data Doesn’t Foot, Trouble? RIGHT
Source(s): CLSA, TradingEconomics.com.
23
Said Chinese PPI Signals Lower Growth, Stocks: RIGHT
Source(s): CLSA, BigCharts.com.
24
Said Frontier Markets Tracking EM Growth: RIGHT
Source(s): Everest Capital, BigCharts.com.
Frontier Markets: EM 2.0
Frontier Markets Fund
Frontier Markets ETF
Africa ETF
Developing Markets Fund
Emerging Markets ETF
25
Said Was Moment of Truth for Gold: Precisely RIGHT
1,365 If Gold breaks 1,356,
then 1,200 comes
into play in a hurry…
Source(s): TIS Group, COMEX.
26
Said Oil Break Even to Push Prices Toward $100: RIGHT
Source(s): Goldman Sachs, COMEX.
27
Words of Wisdom – December 2013
“You make the most money investing in Emerging Markets
when things go from truly awful to merely bad…”
Arjun Divecha - GMO
"Sooner or later everyone sits down to a banquet of
consequences.”
Robert Louis Stevenson
28
Said Bullish Sentiment Extreme, Be Cautious: RIGHT
Source(s): Strategas, BigCharts.com.
S&P 500
NASDAQ
29
Said Defensive Sectors Lagged in ’13, Lead in ’14: RIGHT
Source(s): TIS Group, BigCharts.com.
Utilities
Energy
Healthcare
Materials/Staples
Financials
Discretionary
Defensive Sectors do
not lead in robust
economic recoveries
30
Said Hussman Bubble Model Fits Mkt Trend Well: WOW
Source(s): hussman.com, BigCharts.com.
31
Said Japanese Equity & $/Yen Had More Upside: WRONG
Source(s): dshort.com, TIS Group, BigCharts.com.
S&P 500
Yen
NASDAQ
DXJ
Nikkei
32
Said Japan Had Both Trend & Momentum: REVERSED
Source(s) Strategas, BigCharts.com.
S&P 500
Yen
NASDAQ
DXJ
Nikkei
33
Said Recovery Favors Europe (partic. Southern) > U.S. - RIGHT
Source(s): CLSA, BigCharts.com.
Italy
Spain
France
S&P 500
Germany
NASDAQ
34
Said Greece Was at Economic Inflection Point: RIGHT
Source(s): Dromeus Capital, BigCharts.com.
Airline
Gaming
Telecomm
S&P 500
NASDAQ
GREK
35
Some EM Valuations Were Compellingly Cheap: MIXED
Source(s): J P Morgan, BigCharts.com.
India
Turkey/Indonesia
Brazil/S. Africa
EM
S&P 500
NASDAQ
China
Russia
36
Said Foreign $ Believes India Story, BJP Win Big: RIGHT
Source(s): CLSA, Times NowIndia, BigCharts.com.
ICICI
Tata Motors
HDFC
India ETF
S&P 500
37
Said History Doesn’t Repeat, But Would Rhyme: RIGHT
Source(s): CLSA, TIS Group.
Path of 10-Year rate looks eerily similar
to beginning of 2011, Lots more
downside if follows path of 2H 2011
38
Said Long Bonds at Inflection Point; Trend Down: RIGHT
Source(s): TIS Group, BigCharts.com.
Long Bonds
S&P 500
30 Year Yields
39
Said Soft Commodities Poised for Bradley Turn: RIGHT
Source(s): TIS Group.
40
Said Contrarian Opportunity in Metals & Mining: MIXED
Source(s): TIS Group, BigCharts.com.
Gold Miners
Silver Miners
S&P 500
Global Miners
Metals & Mining
41
Said Rising Nat Gas Prices May Create Coal Opp: MIXED
Source(s): TIS Group, BigCharts.com.
NatGas
Consol/NG ETF
Cloud Peak
S&P 500
Peabody
Arch
2014: The Year of the Alligator
The Trouble With Alligators…
They Bite
43
2013, The Year of the Coyote, Led to Huge Alligator Jaws
Source(s): BigCharts.com.
Japan/R2000
S&P 500
Europe
China/REITs/AGG/HY
EM/GSCI
Long Bonds
Gold
44
Big Alligator Jaws Complacency & Economic Indicators
Source(s): StreetTalkLive.com.
When Jaws Open
(Blue Circles)
They Always Close…
45
Did 1/1 Bradley Date Trigger Reversal of 2013 Trends?
Source(s): TIS Group.
46
Bradley Date Flipped Gator on Head, Inverted Key Trends
Ags
GSCI/Europe
EM
S&P 500
Yen/$
NKY/Japan Y
Japan Y
S&P 500/NKY
Yen/$
Europe
GSCI
EM
Ags
Source(s): BigCharts.com.
47
EVERYONE Expected Dollar Rally: Especially Yen Shorts
Source(s): 13d Research, CLSA
Where head goes, body
follows. $/Yen strength
was unexpected, took
down Japanese Equities
48
Japan Lagging + Foreign $ Giving Up = Max Pessimism?
Source(s): CLSA.
49
S&P 500 Sector Alligator Jaws Perfectly Inverted in 2014
Utilities
Energy
Healthcare
Materials/Staples
Financials
Discretionary
Discretionary
Healthcare
Financials
Staples/Materials/Energy
Utilities
Paradox
Defensive Sectors do
not lead in robust
economic recoveries…
Source(s): BigCharts.com.
50
Meaningful U.S. Sector Rotation: Value/Defensive Rising
Source(s): TIS Group.
51
Because Consumer Spending Momentum Turned Down?
Source(s): StreetTalkLive.com.
52
Core EuroGators Ruled in ‘13, Italian Gator Winning ‘14
S&P 500
Germany
France
Italy/UK
Italy
France
UK
S$P 500/Germany
Source(s): BigCharts.com.
53
Alligators > Crocodiles in ‘13, Crocs & Caimans Lead ‘14
India
Brazil
EEM
S&P 500
China
Russia
S&P 500
Russia
EEM/China
India
Brazil
Source(s): BigCharts.com.
54
Crimean Situation Made Russian Gator Jaws Open Wider
Source(s): BigCharts.com, TIS Group.
NASDAQ
S&P 500
Russia ETF
Lukoil
Gazprom
55
Russian Oil Assets Extremely Cheap, Snapping Shut Now
Source(s): TIS Group, BigCharts.com.
S&P 500
NASDAQ
Gazprom
Lukoil
Russia ETF
56
China Equities Really Cheap: Opportunity or Value Trap?
Source(s): CLSA.
57
Very Tight Credit Conditions in China => Lower Growth?
Source(s): CLSA.
58
Deflation Signs in China Point to Muted Equity Returns
Source(s): CLSA.
59
Taper Fears Led to Fragile 5 Gator Jaws, Reversal on 2/3
Turkey
Indonesia
India
Brazil
S. Africa
S&P 500
S&P 500
India
S. Africa
Brazil
Indonesia/Turkey
Source(s): BigCharts.com.
60
Turkey Raised Rates, Lira Stabilized, Gator Jaws Turned
Source(s): TIS Group, BigCharts.com.
61
Stocks Crushed Bonds in 2013, Jaws Reversed in 2014
Long Bonds
EM Debt
Munis
S&P 500
NASDAQ
NASDAQ
S&P 500
Munis
Long Bonds
EM Debt
Source(s): BigCharts.com.
62
When EVERYONE on One Side of Trade, Pays to Leave
Coming into 2014,
Net Short Interest in
Treasuries was
highest in a decade
Source(s): 13d Research.
63
Housing Made Huge Gator Jaws in ‘13, Inverted in ‘14
Long Bonds
Home Depot
Home Builders ETF
Lowes
Lowes
Home Depot
Home Builders ETF
Long Bonds
Source(s): BigCharts.com.
64
Housing Data Has Rolled Over Hard, Losing Momentum
Source(s): CalcualtedRiskBlog.com.
65
Jaws Couldn’t Have Opened Much Wider on Gold/Miners
Gold Miners
Gold
S&P 500
NASDAQ
NASDAQ
S&P 500
Gold
Gold Miners
Source(s): BigCharts.com.
66
Mini Jaws Opened in Energy Services at Year End 2013
Energy Services
E&P
S&P 500
NASDAQ
NASDAQ
S&P 500
Energy Services
E&P
Source(s): BigCharts.com.
67
Polar Vortex Depleted NatGas Reserves, Must Drill More
Source(s): TIS Group.
68
Higher NatGas Prices Making Coal Cost Effective Again
Source(s): TIS Group.
69
Drawdowns in Copper Inventories Setting Price Floor?
Source(s): TIS Group.
70
Micro-cap (read junky) Opened Widest Jaws, Closing Fastest
Value
S&P 500
Growth
Small
Micro
Micro
Small
Growth
S&P500/Value
Source(s): BigCharts.com.
71
Gravity Held Old Tech in ‘13, Gravity Bit New Tech in ‘14
Priceline
Amazon/Google
S&P500
Oracle
Apple
Broadcom
Oracle
Apple
Broadcom/S&P 500
Priceline
Google
Amazon
Source(s): BigCharts.com.
72
Biotech Juiced Alligator Jaws, Steroids Fade Eventually
GILD
S&P 500
AMGN
CELG
CELG
GILD
BIIB
IBB
NASDAQ
S&P 500
Source(s): BigCharts.com.
Market Outlook
74
Don’t Cry, It’s
Me, Argentina
75
Lowest Equitization Ratio in World? Serious Upside
Source(s): Neuberger Berman, TradingEconomics.com.
STOCKS TRADED; TOTAL VALUE
(% OF GDP) IN ARGENTINA
Argentina Shale Gas Reserves 3
rd
Largest Globally
Source(s): Blog.thompsonreuters.com.
77
Greece is the Word
Greece Economic Recovery Gaining Momentum into 2014
Source(s): TradingEconomics, Markit.
Despite 100%+ Move Off Bottom, Lots of Upside & Cheap
Source(s): TradingEconomics, Bloomberg.
Note(s): CAPE is CyclicallyAdjustedPrice to Earnings.
Greek Stock Market – Athens Exchange
Prices are Now at Levels From Mid - 1990’s
0.0
2.0
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6.0
8.0
10.0
12.0
14.0
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2006 2007 2008 2009 2010 2011 2012 2013
Athens CAPE Ratio
Lowest Shiller P/E in the World
80
Ready for the
Reign in Spain
Spanish GDP Recovery Gathering Real Momentum
Source(s): TradingEconomics, Bloomberg.
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Spain PMI
Spain Index at Same Price as 1999, MktCap/GDP Cheap
Source(s): TradingEconomics, Bloomberg.
SPAIN STOCK MARKET (IBEX 35)
83
India Rajan and the
Temple of Boom
84
New Central Bank Head Stabilized Rupee & CA Deficit
Source(s): Bloomberg, CLSA.
85
Pro-Business Gov’t in India Will be a “ Game Changer”
Source(s): Indiatoday.in.com, Haryanaabtak.com.
86
The Great Call of China
87
Chinese Equities at All-Time Low Valuations (on surface)
Source(s): Bloomberg, dailywealth.com.
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10.0
20.0
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60.0
70.0
80.0
90.0
2006 2007 2008 2009 2010 2011 2012 2013
China A Share CAPE Ratio
88
China’s Two Index Sectors: Private vs. SOE, Own Private
Source(s): J P Morgan Asset Management, Bloomberg.
89
The Abe-san Also
Rises in Japan
90
Goal: Real GDP Growth & Accelerating Inflation; Check
Source(s): TradingEconomics, CLSA, TIS Group.
91
Japan ROEs Rising as Yen Falls & EPS Rise, P/Es Fall!
Source(s): Neuberger Berman, iii.co.uk.
92
The Final Frontier
93
FM Tiny % of Global Markets, Despite Far Better Growth
Source(s): Blackrock, Shroders.
94
Frontier Markets Following Established Path: EM 2.0
Source(s): Everest Capital.
95
GMO Continues to Forecast Lean Returns for Traditional
Source(s): GMO.
Alpha
96
Post-Crisis Deleveraging Historically Measured in
Decades
Source(s): Hoisington Capital Management.
97
U.S. Growth Decelerates as Boomers Age, Deflation
Bites
Source(s): TIS Group, CLSA.
98
Fed in “ Good” Company Being Overoptimistic on Growth
First Estimate 0.1% (expected to go lower)
Source(s) AdviserPerspectives.com.
99
U.S. EPS Cycle is Worst in Post WW II Era, Q1 Negative?
Source(s) AdviserPerspectives.com.
100
Valuations are Clearly Elevated, Can Become More So…
Source(s): KimbleChartingSolutions.com.
101
Low Inflation Allows High P/E, But 91
st
% Expensive
Source(s): AdvisorPerspectives.com.
102
Five Year Cycle Looks Like Half an Alligator Jaw…
+200%
Source(s): J PMorgan Research.
103
Investors Buy What They Wish They Would Have Bought
Source(s): AdvisorPerspectives.com, STAWealth.com.
104
Current Equity Rally Nearing Top End of Historical
Range
Source(s): KimbleChartingSolutions.com, StreetTalkLive.com.
105
S&P 500 Tracking Normal Mid-Term Election Pattern
Source(s): Strategas.
106
One Analyst’s Perspective on Alligator Jaws Closing
Source(s): StreettTalkLive.com
Projections from 4/18/14
107
Hussman Bubble Model Fits Market Trend Eerily Well…
Source(s): hussman.com.
Closed at 1897,
touched 1900
intraday on 5/13
108
Zimmerman is the Most Bearish of Forecasters, Crazy?
Source(s): United-ICAP.com.
109
Stock, Bond, FX, Cmdty Vol at Lows: Minsky Moment?
Source(s): TIS Group.
110
VIX Index Hit 12.04 on May 14
th
, Really Close to Trigger
Source(s): TIS Group.
111
TVIX: Gator Protection? Snaps Hard When Need It Most
Source(s): BigCharts.com.
Might be the most
gaping Alligator Jaws
we have seen…
When Volatility Spikes,
Huge Convexity
Up 70% in January
Up 400% in 2011…
Implementation
113
MCCM Current Asset Class Overview – May 2014
Asset Class Position Commentary
Domestic Equity - Valuations Very High; Profits weak; Defense best
International Equity + J apan profits high, Europe recovering, EM cheap
Opportunistic Equity + Opportunistic/Hedged strategies favored for Alpha
Absolute Return = Low Rates challenging for M/N, Arbitrage >Bonds
Real Estate = EM development; Mezzanine Lending, Public RE
Energy & NR ++ Reserve Acquisition, Global Shale Plays, Alt Energy
Private Equity ++ Growth Capital in EM, Small LBO & Venture Capital
Domestic FI = Deflation risk has made long duration attractive
Enhanced FI = Direct Lending Attractive, Credit strategies at risk
MCCM Current Tactical Positions
114
MCCM 5-Yr Forecasts Favor EM Equity & Private Markets
Source(s):Baird, S&P/LCD, Bloomberg, ThomsonReuters, Bank of America Merrill Lynch, J P Morgan, and Morgan Creek.
Note(s): Public – Equity returns utilize S&P 500, Eurostoxx 600, MSCI J apan, MSCI Brazil, MSCI Russia, MSCI India, MSCI China, and Morgan Creek; Public – Credit expectations utilize BAML High Yield
Master, BAML Corporate Master, and J PM EMBIG indices. Return expectations for private markets include fund manager fees while public markets do not because investors do not have access to gross
returns in the private markets. The above information reflects opinions of Morgan Creek as of the time this presentation is written and all such opinions are subject to change. No representation or warranty,
express or implied, is given by Morgan Creek as to the accuracyof such opinions and no liabilityis accepted bysuchpersons for the accuracyor completeness of anysuch opinions.
Methodology
 Consistent applicationof growth, yieldand multiple assumptions across markets
 Scenario analysis andFX impact includedwhere possible
4% 4%
10%
4%
10%
7%
8%
7%
3%
5%
11%
15%
19%
20%
11%
13%
10%
-
5.0%
10.0%
15.0%
20.0%
25.0%
USA Europe J apan Brazil Russia India China High Yield Investment
Grade
Emerging
Market
Large-Cap
Buyouts
Mid-Cap
Buyouts
Small-Cap
Buyouts
Asia Growth
Equity
Real Estate
Acquisition
Oilfield
Services
Credit
Public - Equity
Public - Credit
Private
5-year Market Nominal Return Expectations
115
Emerging
Markets
Private
Investments
Traditional
Efficient
Frontier
Hedge
Funds
Source: Bloomberg, GMO, NACUBO, MCCM Estimates
In Challenging Environment, Need A Different Approach
Endowment
Model
Portfolio
Enhanced
Efficient
Frontier
Source(s): GMO, MCCM estimates, TIAA CREF returns for Real Assets.
Forecasts: returns for cash/bonds =current yield, returns for equities =GMO estimates, returns for hedge funds =stocks+3%alpha, returns for private =20 year historical average
Definition(s): Compound ROR =compound rate of return; Annualized standard deviation =risk as measured by the variability of performance. The higher the standard deviation, the greater the variability
(and therefore, the risk) of the fund or index; Traditional Efficient Frontier = addition of traditional asset classes such as stocks and bonds; Enhanced Efficient Frontier =addition of more alternative asset
classes. Endowment Model Portfolio estimates calculatedusingPolicyPortfolio and forecast asset class returns.
Investors Now Facing The 0, 3, 5 Conundrum
Farmland
Timber
Real Estate
Traditional
Model
Portfolio
EMD
116
Most Have No Ag Investments Despite Strong Returns
Source(s): TIAACREF, HFRI, CAPrivate EquityIndex, Public PensionData 06/30/13, NACUBO 06/30/13.
Traditional
Institutional
Portfolio
Private
Equity
Hedge
Funds
Average
Endowment
117
Unconstrained MVO: Ag Investments Crowd Out Equities
Source(s): TIAACREF.
118
Challenging Environment Requires New Implementation
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Real Estate
Private Equity
Absolute Return
Global Opportunistic
Enhanced Fixed Income
Traditional Fixed Income
Emerging Markets Equity
Domestic Equity
Energy & Natural Resources
International Equity
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Contact Information
Morgan Creek Capital Management, LLC
301 W. Barbee Chapel Road, Suite 200
Chapel Hill, NC 27517
Contact:
Andrea Szigethy
Phone: (919) 869-8077
Email: aszigethy@morgancreekcap.com
Web: www.morgancreekcap.com
120
Important Disclosures
General
This is neither an offer to sell nor a solicitation of an offer to buy interests in any investment fund managed by Morgan Creek Capital Management, LLC or its affiliates, nor shall there be any sale of securities in
anystate or jurisdiction in which such offer or solicitation or sale would be unlawful prior to registration or qualification under the laws of such state or jurisdiction. Any such offering can be made only at the time
a qualified offeree receives a Confidential Private Offering Memorandum and other operative documents which contain significant details with respect to risks and should be carefully read. Neither the
Securities and Exchange Commission nor any State securities administrator has passed on or endorsed the merits of any such offerings of these securities, nor is it intended that they will. This document is for
informational purposes onlyand shouldnot be distributed. Securities distributedthrough Town Hall, Member FINRA/SIPC or thoughNorthern Lights, Member FINRA/SIPC.
Safe Harbor Statement
This presentation shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of, the securities in any state or jurisdiction in which such offer or solicitation or sale would be
unlawful prior to registrationor qualificationunder the laws of suchstate or jurisdiction.
Performance Disclosures
There can be no assurance that the investment objectives of any fund managed by Morgan Creek Capital Management, LLC will be achieved or that its historical performance is indicative of the performance it
will achieve in the future. Past performance is no guarantee of future results. The illustrations are not intendedto predict the performance of any specific investment or security.
Forward-Looking Statements
This presentation contains certain statements that may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical fact, included herein are "forward-looking statements." Included among "forward-looking statements" are, among other things, statements about our
future outlook on opportunities based upon current market conditions. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve
assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual results could differ materially fromthose anticipated in these forward-looking statements as a result of a variety
of factors. One should not place undue reliance on these forward-looking statements, which speak onlyas of the date of this discussion. Other than as required by law, the company does not assume a duty to
update these forward-lookingstatements.
Indices
The index information is included merely to show the general trends in certain markets in the periods indicated and is not intended to imply that the portfolio of any fund managed by Morgan Creek Capital
Management, LLC was similar to the indices in composition or element of risk. The indices are unmanaged, not investable, have no expenses and reflect reinvestment of dividends and distributions. Index
data is provided for comparative purposes only. A variety of factors may cause an index to be an inaccurate benchmark for a particular portfolio and the index does not necessarily reflect the actual investment
strategy of the portfolio.
No Warranty
Morgan Creek Capital Management, LLC does not warrant the accuracy, adequacy, completeness, timeliness or availabilityof any information provided by non-Morgan Creek sources.
Risk Summary
Investment objectives are not projections of expected performance or guarantees of anticipated investment results. Actual performance and results may vary substantially from the stated objectives with
respect to risks. Investments are speculative and are meant for sophisticated investors only. An investor may lose all or a substantial part of its investment in funds managed by Morgan Creek Capital
Management, LLC. There are also substantial restrictions on transfers. Certain of the underlying investment managers in which the funds managed by Morgan Creek Capital Management, LLC invest may
employ leverage (certain Morgan Creek funds also employ leverage) or short selling, may purchase or sell options or derivatives and may invest in speculative or illiquid securities. Funds of funds have a
number of layers of fees and expenses which may offset profits. This is a brief summary of investment risks. Prospective investors should carefully review the risk disclosures contained in the funds’
Confidential Private Offering Memoranda.
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Important Disclosures
S&P 500 Index -- this is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The index is a market-value weighted index – each stock’s weight in the
indexis proportionate to its market value. Definition is fromStandardand Poor’s.
TLT– (iShares 20+ Year Treasury Bond ETF). The investment seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays U.S. 20+
Year Treasury Bond Index. The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. The underlying index measures
the performance of public obligations of the U.S. Treasury that have a remainingmaturity of 20 or more years. Definitionis fromYahoo Finance.
FTSE NAREIT All REITs Index -- The FTSE NAREIT All REITs Index is a free float adjusted market capitalization weighted index that includes all tax qualified REITs listed in the NYSE, AMEX, and NASDAQ
National Market. Base date of indexis December 31, 1999with a base value of 100.
Russell 2000 Index -- The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8%of the Russell 3000 total market capitalization. The index
was developedwith a base value of 135.00 as of December 31, 1986.
NASDAQ Index (CCMP) -- The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was
developedwith a base level of 100 as of February 5, 1971.
GSCI Commodity Index -- this is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrumof
commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The combination of these attributes provides investors with a representative and realistic picture of realizable returns
attainable inthe commodities markets. Definitionis fromGoldman Sachs.
IBEX 35 Index (IBEX) -- The IBEX 35 is the official index of the Spanish Continuous Market. The index is comprised of the 35 most liquid stocks traded on the Continuous market. It is calculated, supervised
and published by the Sociedad de Bolsas. The equities use free float shares in the index calculation. The index was created with a base level of 3000 as of December 29, 1989. Definition is from
www.bloomberg.com.
Gold -- Spot, or real-time, price of gold.
Nikkei-225 Index -- This is an index consisting of the price-weighted average of 225 top-rated J apanese companies listed in the First Section of the Tokyo Stock Exchange. The Nikkei Stock Average was first
publishedon May 16, 1949, where the average price was Yen176.21with a divisor of 225.
FTSE MIB Index (FTSEMIB) -- The Index will consist of the 40 most liquid and capitalized stocks listed on the Borsa Italiana. In the FTSE MIB Index foreign shares will be eligible for inclusion. Secondary lines
will not be eligible for inclusion. The calculation andmethodologywill be unchangedfromS&P MIB Index. Definitionis fromwww.bloomberg.com.
Athens Stock Exchange General Index (ASE Index) -- The Athens Stock Exchange General Index is a capitalization-weighted index of Greek stocks listed on the Athens Stock Exchange. The index was
developed with a base value of 100 as of December 31, 1980. Definition is from www.bloomberg.com.
BOJ– refers to Bank of J apan.
Japan Topix - Also known as the Tokyo Stock Price Index, is a capitalization weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the sub-
indices of the 33 industrysectors. The indexcalculation excludes temporary issues and preferred stocks, and has a base value of 100 as of J anuary4, 1968.
JGB – refers to J apanese Government Bonds.
HFRI Emerging Markets Index – this is an Emerging Markets index with a regional investment focus in the following geographic areas: Asia ex-J apan, Russia/Eastern Europe, Latin America, Africa or the
Middle East. Definition is from Hedge Fund Research, Inc.
HFRI FOF: Diversified Index -- invests in a variety of strategies among multiple managers; historical annual return and/or a standard deviation generally similar to the HFRI Fund of Fund Composite index;
demonstrates generally close performance and returns distribution correlation to the HFRI Fund of Fund Composite Index. A fund in the HFRI FOF Diversified Index tends to show minimal loss in down markets
while achieving superior returns in up markets. Definition is from Hedge Fund Research, Inc.
Price-To-Earnings Ratio - P/E Ratio: The price-to-earnings ratio, or P–E ratio, A valuation ratio of a company's current share price compared to its per-share earnings. Also sometimes known as price multiple
or earnings multiple. Definition is from Investopedia.
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Important Disclosures
MSCI World Index -- this is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index currently
consists of 24 developedmarket country indices. Morgan StanleyCapital International definition is fromMorgan Stanley.
MSCI BRIC -- this is a free-float adjusted market capitalization weighted index that is designed to measure the equity market performance of the following four emerging market country indices: Brazil, Russia,
India and China.
MSCI Emerging Markets Index -- this is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of November 2012 the
MSCI Emerging Markets Index consisted of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia,
Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and UnitedArab Emirates.
MSCI Europe Index -- this is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The MSCI Europe Index
currentlyconsists of 16 developedmarket countryindices.
MSCI ACWI Index-- this is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists
of 45 countryindices comprising24 developedand 21 emerging market country indices. Source: MSCI Barra.
Barclays Aggregate Bond Index -- this is a composite index made up of the Barclays Government/Corporate Bond Index, Mortgage-Backed Securities Index and Asset-Backed Securities Index, which
includes securities that are of investment-grade qualityor better, have at least one year to maturity and have an outstandingpar value of at least $100 million. Definition is fromBarclays.
CAC 40 Index – The CAC 40 Index is a capitalization weighted indexand the principal Frenchstock indexcovering 40 French Equities.
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